United Arab Emirates consumer goods

UAE to allow 100% foreign ownership in companies

June 5th 2018 | United Arab Emirates | Non-food products

Event

According to a tweet in late May by the UAE prime minister, Sheikh Mohammed bin Rashid al‑Maktoum, the UAE is to allow 100% foreign ownership in companies, along with new ten-year work visas for investors, scientists, doctors, engineers, and innovators from abroad.

Analysis

Currently, full foreign ownership is restricted to the free zones. Until now, foreign ownership in UAE companies outside the free zones has been capped at 49%, which prevented foreign investors from gain a controlling stake in UAE-based businesses. The move to allow 100% foreign investments in UAE companies should further improve the business environment in the country and encourage foreign investors to start businesses there. However, there appear to be caveats as to how extensively the 100% ownership law will be applied. A committee, including representatives from the seven emirates, is to be formed to decide which industries are to be fully opened to foreigners. Nevertheless, the move underscores the government's policy priority in recent years to make the UAE an attractive destination for foreign businesses. The decision to extend the work visa regime for some foreign professionals is also likely to be viewed as business-friendly and comes amid growing perceptions that the UAE has become a more expensive place for foreigners to live and work in the Gulf Co-operation Council region after the introduction of value-added tax (VAT) since the start of 2018 and other levies, such as the excise duty introduced in 2017.

The recent announcement on foreign ownership is likely to face some opposition from local businesses, as they will face more competition. It will also force a rethink among the UAE's major free zones, whose business models are predicated on companies only being able to have full control of their businesses inside specified zones. Nonetheless, the move has some advantages for the UAE—notably it will bring in substantial foreign direct investment in sectors that are likely to be opened up to international investors. The move will also boost economic growth, which has faced a slowdown following the slump in oil prices since 2014, although global oil prices are recovering.

Impact on the forecast

We had already forecast that the government would liberalise its foreign ownership rules in order to improve the business environment and lure investments. Nevertheless, we will keep a close watch on the nuances of the policy, which we believe will be set out in the coming months. Our policy trends forecast remains unchanged.